Joodie Holdings No 2 Pty Ltd v Bright

[2005] HCATrans 845

[2005] HCATrans 845

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S246 of 2005

B e t w e e n -

JOODIE HOLDINGS NO 2 PTY LIMITED

Applicant

and

DR RALPH THOMAS BRIGHT

Respondent

Application for special leave to appeal

McHUGH J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 7 OCTOBER 2005, AT 10.45 AM

Copyright in the High Court of Australia

MR D.J. FAGAN, SC:   May it please the Court, I appear for the applicant.  (instructed by Holman Webb)

MR S.J. GAGELER, SC:   If the Court pleases, I appear with MR R.P.L. LANCASTER for the respondent.  (instructed by G. Shelton & Associates)

McHUGH J:   Yes, Mr Fagan.

MR FAGAN:   Your Honours, in light of what has been said in some of the earlier applications, I emphasise that here the Court is not asked to embark on appeal points which would involve any question of fact; they are straight questions of law.  The first one is a fairly obvious question of contract law; the second one is a question of construction of the term of the sublease.  On the other hand, I cannot suggest that the point on which it is said the Court of Appeal erred, the first point relating to the supposed interconnection of the contracts, is of obscurity or requiring resolution by reason of conflicting decisions elsewhere or the like, but the point is rather that it was perfectly plain and rather the applicant appeals to the second part of section 35A and the importance to the administration of justice in the particular case.

Here we had two contractual arrangements between these parties.  The applicant conducted in premises in Liverpool a general medical practice in which it contracted with the respondent, Dr Bright, that it would pay him $162,000 for him to work in their medical centre for three years for certain hours and the applicant would provide him support services, do his billing for him, provide him nursing staff and make facilities available to him - no specific facilities but would make space and equipment available to him – and they would then shares fees 50 per cent of all fees that were billed.

After approximately nine months of that, Dr Bright, the respondent, purported to terminate this contract, left it, no repayment of any of the $162,000 which had been paid up front as part of the contract.  The Court of Appeal found, as had the judge below, that there had been no breach by my client of that contract, and yet the Court of Appeal purported to find a way of saying that there was not a repudiation by Dr Bright in simply walking away from the contract, refusing to perform further.

McHUGH J:   But the approach of the Court of Appeal seems to have been this, that all questions of repudiation depend upon imputing to one of the parties an intention which is inferred from the surrounding circumstances.  The court took the view that your client was so badly in breach of the sublease that it must have imputed to it an intention to repudiate the contract as well as the lease.  What is the matter with that?

MR FAGAN:   That is not what they said, your Honour.

McHUGH J:   Well, they said they were so closely connected, did they not, that a clear breach of one may be readily seen as constituting a breach of the latter?

MR FAGAN:   That was contrary to their other findings which were not only correct but unarguable, namely that the contract and sublease were not mutually interdependent.  There was a provision which is in the application book ‑ ‑ ‑

McHUGH J:   Yes, that there was no cross ‑ ‑ ‑

MR FAGAN:   There was no cross-dependence and that was evidently deliberate.  The dependence clause was at page 23 of the application book.  It is only in the sublease and it makes it a condition of the sublease “that at all times . . . the Sub-Lessee”, the doctor, respondent, would be bound by and “not in breach of a contract”, which is his contract for services.  But there was nothing equivalent in the contract for services.

CALLINAN J:   To adapt the language of implied terms, there were certain indisputable background facts common to the transactions, the parties and the use of the space.  Those facts inextricably linked the two arrangements.

MR FAGAN:   May I make this point, your Honour, that the subject matters of the two contracts were in fact expressly mutually exclusive.  If one looks at the contract, it provided at application book page 7 in paragraph 3.5 that what the practitioner – that is the respondent – would do was, from the second line:

continue to carry on, his general medical practice at the Centre for the hours and at the times specified in the Guideline.

So what he promised to do was to carry on a general practice in the area which was called the centre.  In the sublease, if one goes over to application book page 20, the use of the premises which were subleased was that – this is clause 3 at line 35:

The Sub-Lessee must use the Premises only for the permitted use as set out in Item 3 –

When one goes to item 3 at application book page 24 at line ‑ ‑ ‑

CALLINAN J:   What about the other part of 3:

The Sub Lessee may at reasonable times . . . make use of the Shared Facilities.

MR FAGAN:   That extended the area to which the doctor had access.  He had a demise of the premises and he also had access to some shared facilities.

CALLINAN J:   Contemplated at least reasonable access.

MR FAGAN:   Yes, but what I am emphasising at the moment is the purpose for which he had the right to occupy the subleased area and the licensed right to use shared facilities subject to that reasonable permission.  The purpose was the permitted use set out in item 3.  Item 3 at application book page 24 at line 40 is:

Cosmetic medicine and surgery and specifically excludes the practice of general medicine.

So that he was leased an area in which he might carry on cosmetic surgery but could not therein carry on a general practice.  On the other hand, with respect to the centre, the applicant agreed to provide him the use of the centre on terms that he would therein carry on a general practice.  These were mutually exclusive areas of medical activity, as the parties agreed.

This was recognised in argument in the Court of Appeal and, in my submission, conceded by counsel who appeared for the respondent.  I am referring to that part of the argument which was extracted at page 60 in the application book.  At line 50 Justice Campbell observed that:

as a general medical practitioner he worked 45 hours a week.

That was the hours requirement in the contract for him to work in the medical centre.  Answer:

Yes.

CAMPBELL AJA:   He could have kept on doing that even if the sublease had been abandoned.

NEEDHAM:   Yes.

Then going to the next page down to what Justice Santow had to say, referring to an earlier observation he said:

I think I perhaps agreed too readily.  If the contract –

that is the contract for services –

is, as just been pointed out, is a contract in respect of general medicine, and that seems to be what recital B says in the contract, p 6, that’s a practice of general medicine therefore it’s a GP practice.

NEEDHAM:   Quite so.  Everything that he did at the centre was a GP’s practice.

SANTOW JA:   So why could he not, if he’d lost the sublease –

which, as we have just seen, was for cosmetic surgery, excluding general practice –

continued to practice general medical at the centre.

After a further remark by Justice Santow, counsel said:

That’s quite correct the impact on his practice was only in relation to his cosmetic surgery and medicine practice –

which was the sublease.

Your Honours, to see the significance of that in physical terms, if your Honours look at the plan layout, which is at application book 26, the area at the bottom which has in brackets the words “ROOMS PREVIOUSLY OCCUPIED BY MACQUARIE STREET COSMETIC MEDICINE”, that is the sublease area and that is where there was a quite distinct contractual arrangement permitting the respondent to occupy and carry on cosmetic medicine.  The court said that because of the way in which the applicant had refused him shared access to a procedures room, which is marked there, it had repudiated that sublease and he was entitled to terminate that sublease and abandon his obligations under it. 

Then the court went on to say that although the contract was not dependent in a contractual manner upon continuance of the sublease, somehow when the sublease was validly terminated by the doctor because my client had repudiated it, somehow the respondent was entitled to terminate that contract for services as well, despite what we have just seen conceded in the transcript.  The reasoning of the court with respect to that is entirely captured in paragraph 86 at application book 99.  With great respect, it just does not bear analysis.  The statement is:

I should here deal with the question of whether there was any entitlement to terminate the contract which had not been itself breached.

That is a finding of fact and it was made in the court below and it stood.  There was never any breach by my client of the contract.

McHUGH J:   That means that there is no breach in the sense of any breach of any particular contractual provisions, but the court goes on in effect to say there is a breach because you are repudiating the contract as a whole.  They may be right or wrong about that, but it does not raise any question of general principle, as you concede.

MR FAGAN:   There is a non-application.  There is a failure to apply a point of law, principle of law, and there is a purported application of some principle of substratum which has no basis in law.

McHUGH J:   Mr Fagan, if this Court granted special leave every time it was argued that an intermediate court had failed to apply a legal principle or statute, this Court would be overwhelmed with appeals.

MR FAGAN:   I would remind your Honours that the Court has granted leave in cases where there has been misapplication of law, although the point of law was clear.  There have been some cases where that has been done and the result has been an appeal which has involved the Court in an extensive determination of fact.  None of that is invited here.  This is a very shortly disposed of point.  It does not require any further papers than what one sees in the application book to resolve the point that is raised.

If one goes on through this paragraph 86, what the court said was that:

the contract and the sublease were mutually dependent in the sense that breach of the contract was a breach of the sublease, though not in terms vice versa.

There is a contradiction in that very paragraph.  They were not mutually dependent.  The sublease ‑ ‑ ‑

CALLINAN J:   Is another way of putting your argument that the Court of Appeal has really found an implied term that a breach of one of the agreements is a breach of the other and that the implication of such a term actually contradicts the express language of the relevant contract and is therefore something that you cannot imply – a kind of Codelfa argument.  It adopts the statements of principle in Codelfa.  Is that another way of putting it?

MR FAGAN:   If what underlies paragraph 86 is ‑ ‑ ‑

CALLINAN J:   It might be.  It is tantamount to implying a term, is it not, really?  Where else do you get it from?

MR FAGAN:   In my submission, it cannot be got from anywhere, what has been done here.

CALLINAN J: The structure of the agreements, to borrow something from constitutional language. The structure of the Constitution gives you an implication.

MR FAGAN:   If what is meant to underlie this paragraph is that the court is, without saying as much, finding an implied term, then there is a direct breach of strict principle about implication of term.  Moreover, it was not argued that way.

McHUGH J:   But in many cases questions of repudiation, at least implied repudiation, always consist of judicial constructs which impute an intention to one of the parties based on all the circumstances of the case.  I must say I read the Court of Appeal as in effect saying that commercially the sublease and the contract are mutually dependent on each other.  In that sense, repudiation of the sublease necessarily involves an intention to repudiate the contract.

MR FAGAN:   Really, your Honours, if that is what the court meant to be saying, it is directly contrary to what they have said elsewhere and what was plain on the papers.  For example, in paragraph 20 at application book 72 in Justice Santow’s judgment, it appears that:

In addition the sublease contains a cross-default clause –

and clause 8 is cited –

though only in rendering a breach of the contract a breach of the sublease and not vice versa.

His Honour has expressly recognised and, as I pointed out in transcript, counsel expressly conceded that it did not work the other way.  One can understand why that would be.

McHUGH J:   Your point is absolutely right, that there has been no breach of any specific provision of the contract, but paragraph 86 seems to me to be understandable only on the basis that the court is saying that they are so closely connected that once you repudiate the sublease, you are evincing an intention also to repudiate the contract.  It may be right or wrong but that is what they seem to be saying.

MR FAGAN:   Your Honour, may I say that one just cannot allow that to stand because to allow a party to be deprived of the contractual rights which flow from a refusal of one party to perform its contract on the basis of a vague notion of interrelationship without finding collateral contract with a positive finding that there is no reverse interdependence because the clause went only one way by what the parties had expressly decided, without articulating an implied term and in the face of facts which just would not have permitted an implied term, without any argument of frustration which would attract this word “substratum” and any finding of substratum, it is my submission, your Honours, that to allow an intermediate court of appeal just to deprive a party of contractual rights on a vague and inherently contradictory formulation such as in this paragraph is just contrary to the interests of administration of justice.

McHUGH J:   But it means that the Court of Appeal got it wrong and that is not a ground for special leave to appeal.

MR FAGAN:   Your Honours have a discretion.  It may – and I am ‑ ‑ ‑

CALLINAN J:   Yes, it may be.  For my part, I think that the administration of justice in a particular case may be very important.

MR FAGAN:   I submit that it is here and I submit that the factors in favour of it are that it is an outstanding error on the face of the record, it is arbitrary, it is a failure to apply principles of law and it is simple for the Court to resolve.  It involves no testing of fact.  It is a very short appeal and it has significant impact on the rights of parties.  I submit it would not be correct to refuse special leave and allow a Court of Appeal judgment which has so failed to apply obvious principles of contract law to stand.  Those are my submissions.

McHUGH J:   Yes, Mr Gageler.

MR GAGELER:   Your Honours, this is a case where the facts really cannot be avoided and where the facts are somewhat messy and where the facts ‑ ‑ ‑

CALLINAN J:   That does not have any impression on me at all, Mr Gageler, that this Court should have a cordon sanitaire around the facts. 

MR GAGELER:   I am responding to my learned friend’s opening lines, your Honour.

CALLINAN J:   For my own part, the fact that the Court might have to get down into the facts is totally irrelevant.

MR GAGELER:   I am going to take your Honour to the facts, but really for my learned friend to say that it is all a question of law and a short point and there is no need to go to the facts is simply wrong.  The point is that the facts really provide a number of routes to the same conclusion, which was a conclusion of repudiation which the Court of Appeal reached.  There is, in our respectful submission, no relevant concession that one can glean from the transcript to which your Honours were taken.  What the thrust of the argument that was being put in that transcript is, if your Honours go to page 62 ‑ ‑ ‑

CALLINAN J:   Mr Gageler, for myself – and I am only speaking for myself – I would not read that as some kind of a binding concession of any kind.

MR GAGELER:   No, but it really is part of a preamble to an argument that appears at the next page.  The argument that there is being put is that for this particular medical practitioner, that is for the respondent, the practice of cosmetic medicine was part of his practice of general medicine that he carried on at the centre.  Indeed, cosmetic medicine was 30 per cent of his practice of general medicine at the centre.  From his point of view – and there was plenty of evidence about this – to carry on that practice of general medicine at the centre, that is the 30 per cent that covered cosmetic medicine, it was necessary for him to have access to the procedure room.  So if your Honours go back to ‑ ‑ ‑

CALLINAN J:   I was aware of that.  Mr Gageler, can you just tell me this.  Is what the Court of Appeal did in paragraph 86 tantamount to implying the terms?

MR GAGELER:   We do not see it that way, your Honour.

CALLINAN J:   How do you justify paragraph 86?

MR GAGELER:   There are two ways, your Honour.  There was an argument that was being put to the Court of Appeal in the transcript and the argument went something like this.  The argument went:  if you go back to the contract which your Honours have at pages 2 and following and you look at clause 2.1 at page 5 and clause 2.2 at page 6, what the present applicant was obliged to do was to provide the services to the respondent “in a diligent, proper and businesslike manner.”  If you then go to the definition of “Services” at page 4 and you see in paragraph (a) that it includes first and centrally the:

provision of premises and equipment at the Centre necessary for the Practitioner to operate his medical practice from the Centre –

You put that together with the fact that 30 per cent of the applicant’s medical practice at the centre was cosmetic medicine and the fact that he said for reasons of minimising infection and ensuring privacy for the patient he needed access to the procedure room for the purpose of carrying on that practice ‑ ‑ ‑

McHUGH J:   We need not hear you any further.  Do you want to say anything in reply, Mr Fagan?

MR FAGAN:   In relation to what my friend was just putting about the interrelationship of the contracts, what your Honour Justice McHugh suggested to me was that paragraph 86 of the judgment might be read as meaning that the Court of Appeal was saying that breach of the sublease which resulted in it being treated as repudiated by my client could be regarded as evincing an intention not to perform a contract.  If that is what they meant, they have jumped over the question of whether there was any breach of the contract.  One has repudiation of the contract for services if one has a breach of it and it is a repudiatory breach such as to be a breach it indicates that its obligations will not be performed in terms.

Here all that the Court of Appeal has identified is a breach of the sublease and expressly found that there was no breach of the contract for services, whatever may have been the overlap between general medicine and cosmetic surgery.  If there is no breach of the contract for services, then to leap forward and say that there has been an evincing of an intention not to perform it and thus a repudiatory breach without finding in the first place breach is impossible.  They are my submissions.

McHUGH J:   Thank you.

In this matter the applicant does not suggest that an appeal would be a suitable vehicle for the determination of any question of general importance to the law of contract or the law of landlord and tenant.  However, the applicant contends that there has been a miscarriage of justice in the particular circumstances of the case.  We are of opinion that the case does not have sufficient prospects of success to warrant the grant of special leave to appeal. 

Accordingly, the application is dismissed with costs.

AT 11.09 AM THE MATTER WAS CONCLUDED